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    Question

    ParentCo has a net investment in foreign subsidiary of

    USD 50m. It borrows USD 30m to hedge part of the net investment. The USD loan is designated as a hedge of net investment. During the year, the foreign currency strengthens, producing an exchange gain on the borrowings and on translation of the net investment. How are these amounts presented?
    A Both gains in P&L. Correct Answer Incorrect Answer
    B Borrowing exchange gain in P&L; net investment translation in OCI. Correct Answer Incorrect Answer
    C Both gains offset in OCI to the extent hedge is effective; remainder in P&L. Correct Answer Incorrect Answer
    D Both gains in OCI with separate reclassifications on disposal. Correct Answer Incorrect Answer
    E Borrowing gain in equity; translation gain in OCI. Correct Answer Incorrect Answer

    Solution

    For an effective net investment hedge, the effective portion of the gain/loss on the hedging instrument is recognised in OCI and presented in the foreign currency translation reserve; any ineffective portion goes to P&L. Translation of the net investment goes to OCI. They offset in OCI to the extent effective.

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